What are 5 frequently asked questions pertaining to Uniform Commercial Code (UCC)?
Q: How do you describe the debtor on your financing statement when collateral is held in a trust?
A: It’s complicated! If the trust is a Registered Organization (like a Delaware statutory trust), then you follow the same rules for traditional organization debtors. Use the name as described in the public organic record. If, however, the trust is not a Registered Organization (like a common law trust), then first check to see if it is named in its organic formation documents. If it is, hooray! Follow the same rule as above. If not, the name of the settlor must be provided along with language indicating that the collateral is held in a trust.
Q: Are all UCCs effective for 5 years?
A: Almost! Wyoming has a non-uniform effective period of 10 years. In fact, we’ve just come upon the 5 year marker since that amendment was enacted. This means it’s time to start ensuring you are searching farther back for effective Wyoming financing statements. In all jurisdictions, if the transaction is a public finance or manufactured home transaction, then those financing statements have longer effective periods of up to 30 years. If the debtor is a transmitting utility, then the lien remains active until effectively terminated.
Q: What is the difference between a due diligence and an RA9 compliant search?
A: In order to have an effective financing statement, one of the requirements is that your lien is able to be found when searching by the correct name of the debtor using the standard search logic of the jurisdiction. The state’s standard search logic may include some corporate ending noise words that are ignored, but by and large is typically a strict logic providing results very close to the character string entered. Similar names or name variations may not be found in this type of search. Running an RA9 compliant search following the filing of your financing statement helps to ensure that you presented the correct name and that the state indexed that name correctly. This search-to-reflect your filing can also alert you to prior secured creditors who may have filed their financing statement(s) in advance of yours. A due-diligence search is often accomplished by using a database that allows for a “begins with” or “wildcard” search logic that enables the searcher to cast a wider net to identify other liens that may have been filed under similar names or filings mis-indexed that might still be effective.
Q: Is there a nationwide database for searches?
A: Nope. Other than a few database providers who have built resources that connect some jurisdictions, there is no one, reliable resource that allows you to search across all jurisdictions. Deciding where to search for due-diligence purposes requires the searcher to pick and choose which states, counties, towns, cities and courts are likely the jurisdictions within which applicable liens will be found. This is not easy. Because ancillary liens (like IRS liens) and court activity (like bankruptcy proceedings) can be almost anywhere – the searcher must consider the cost/benefit analysis when casting their net.
Q: Why do the filing offices continue to report terminated liens?
A: Shhhhhh! You must, immediately strike the word “terminated” from your vocabulary! It is a bad, dangerous word in the context of lien searching. Remember, the UCC is just a giant, messy bulletin board and anyone can file anything. Erroneous UCC records, and possibly some fraudulent filings, are recorded every single day. It is very important to understand that the filing office does not gauge the legal sufficiency or effectiveness of records as a basis for filing. The sufficiency and effectiveness of filings is left to the users of the filing system and the courts where such issues may be litigated. There is only one way to confirm that a lien has been “T-Worded” and it is not by review of your lien search results. Direct contact with the secured parties of record (all of them) must be made in order to get the evidence you need to confirm that a loan is no longer active. The filing offices do a great service by continuing to report liens until a year after their natural lapse date – giving you the ability to investigate what might still be an active filing.